Raw deal

On his way out the door, departing City Manager John Ware is setting up a sweetheart tax-dollar giveaway to former Governor Bill Clements and oilman Ray Hunt that will make his Trinity River and sports-arena deals look like sound government policy.

Impossible? Consider this: Clements and Hunt, both hugely wealthy men more than capable of paying their own way, want Ware to use city of Dallas tax dollars to help create a speculative real estate development in rural Kaufman County, almost 20 miles east of downtown Dallas.

If the moguls get their way--and what's to stop them?--Dallas taxpayers will suddenly be on the hook to provide water, sewers, street lights, a fire station, a police station, garbage pickup, and every other normal city service for what is now a remote corner of rural Kaufman County.

This, in a city that is $3.2 billion behind in the provision of basic maintenance for existing neighborhoods.

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The city council--which has proven it can't count money and listen to someone talk fast at the same time--will be told that this is a good deal for Dallas. By "annexing" the former governor's baronial farm at the southern foot of Lake Ray Hubbard, the story will go, Dallas will be able to "grow the tax base."

In other words, for the privilege of shouldering most of the expense and risk of the development, Dallas will acquire a remote but affluent enclave that it will then be able to tax.

The problem with this line of reasoning, according to people who actually know anything about annexation, is that it's upside-down and backward, and it won't fly. It's the opposite of how cities that do a lot of annexing arrange their business. It won't pay off. And it runs the risk of leaving Dallas taxpayers holding a big, fat bag of debt.

In other words, a typical John Ware deal.

Bill Clements, whose political career was destroyed by revelations of his involvement in the 1980s SMU football bribery scandal, owns a 2,200-acre horse and cattle farm where a corner of Kaufman County nicks the bottom of Lake Ray Hubbard. The farm, where Clements' son lives, lies between the towns of Heath and Forney in the general Interstate 20-Lake Ray Hubbard corridor made infamous in the Roaring '80s by Danny Faulkner, king of the fast-talking, land-flipping, note-floating condo scams.

In recent years, the area around Forney has become a haven for fed-up persons of wealth. Gently rolling, well watered, sparsely inhabited, it's a great place for horses and make-believe farms.

The area around the Clements farm is especially pretty and has attracted the eye of more than just rich people. Hovering at the skirts of the former governor's property are the bohemian cottages of an array of artists, writers, antique-car restorers, and other oddball nonconformists.

The people who live near the farm are smart enough to see what's coming and why. Some of them have already put up protest signs by their mailboxes saying things like, "NO TO GREED. NO TO DALLAS."

"The whole thing is so absurd, I can't even conceive of the city even thinking about doing this," says Buddy Miller, a composer who lives in a faded blue two-story farmhouse just down the road from one of the Clements manor houses.

Miller and his neighbors think it's obvious why Clements and his co-adventurer, Ray Hunt, would like to see the annexation take place. Urban infrastructure will put the developers in position to earn hundreds of millions of dollars in profit that wouldn't be possible without the generous help of Dallas taxpayers.

Clements is asking Dallas to eat 2,200 acres total, but probably only a small portion of that land is usable for any kind of serious development. The rest of it is in the floodplain of the East Fork of the Trinity River.

"That's the interesting thing," Miller says. "All the stuff behind the [Lake Ray Hubbard] dam on the Mesquite side of the area floods like crazy. If the levee breaks, which it has a couple of times, there are some homes out there that flood."

In recent years, Clements has been buying up land that is above the floodplain. "He's purchased all of it, except for mine and a neighbor's," Miller says. Most of that land, before Clements bought it, was in what Miller calls "Raunchy Ranchettes"--parcels of five to 10 acres occupied by large families with multiple guard dogs.

The problem for anybody who wants to ratchet up the value of the land by squeezing in more houses is that all of those raunchy ranchettes are on septic tanks. Current federal and state environmental rules require that any new development in which the lots are smaller than one acre must be served by a real sewer system.  

There are a couple of small sewer systems not too far from the Clements farm, one in Heath that was built to accommodate a school and another more robust one in Rockwall. But they are served by treatment plants that already empty into Lake Ray Hubbard. The question is how much "effluent" Lake Ray Hubbard can take.

Stephen Davis, whose grandparents settled the land that is now the Clements farm, says people in the area have always counted on the limited sewage-treatment possibilities as a barrier against dense development. "People are already cautioned not to swim, eat the fish, or certainly not to drink the water in Lake Ray Hubbard," Davis says.

But what if Dallas were to annex this pocket of land on the far side of the lake, eight miles from the eastern border of the city?

"I guess they would have to pipe the sewage across the lake somehow," Davis says.

But it could be done. All it takes is money. And, in this case, it sure wouldn't be Ray Hunt's or Bill Clements' money.

It would be yours.
For people like Miller and Davis, it's almost impossible to believe Dallas would seriously consider leap-frogging across miles of rural country to create an island of urban infrastructure in the middle of what they had always hoped was nowhere.

State law requires that a city annex only land that already touches one of its borders. But Dallas owns Lake Ray Hubbard and has a teensy strip of border just a few yards wide beside the water pipe connecting the lake, a reservoir, to the city water supply. If you look very carefully at maps, there is also a faint little line all around the edge of the lake showing that the lake is a part of Dallas. So that means the Clements property, which touches the lake, falls technically within the legal requirements for annexation.

The more interesting question is not how but why the city would want to annex.

"If it was on the west side of the lake, where Dallas almost reaches the lake, you could almost see it," Davis says. "But not here, where you're not just in another county, you're almost in a different part of the world."

In fact, this annexation would be pretty much the exact opposite of what officials have always tried to do in Houston, which is one of the nation's most aggressive annexers.

Former Houston mayor Bob Lanier used annexation to help Houston dig out of debt after the real estate depression of the late 1980s. When he was mayor, Lanier looked at annexation deals the way he had looked at real estate earlier in life when he was getting rich as a developer.

"I tried to make a profit," Lanier told the Dallas Observer.
The way he made a profit on annexations, he says, was to let the developers go in first and assume all the risk. He waited for them to put in all the streets, sewers, and other expensive stuff; waited for them to sell all the lots; and made sure all the houses and stores and industrial properties were occupied by nice, big, juicy taxpayers. Only then did Lanier come in with the city's mighty powers of annexation and take over.

Because new state laws require a city to provide basic services to any annexed area within a certain time period after annexation, Lanier says the ticket is making sure you don't annex too soon.

Sometimes new developments can contract for services with an adjacent city, but there is no community adjacent to the Clements farm capable of providing full-scale urban services. In Texas, developers can also create their own little mini-governments, called municipal utility districts, or MUDs, and sell bonds and raise money to provide their own services. But that involves much more risk for the developer.

Either way, Lanier says it makes no sense for the city to annex land where it must then become partners on a speculative new development.

"I would have declined to have the city go in and develop infrastructure first," Lanier says. "Either you make the developer pay for all that out of his pocket, or he can create a MUD and sell bonds to do it. But however it's done, I always made sure the annexation left the city in a profitable position."

For Lanier, that was the golden rule of annexation: The city takes no risk and makes lots of money.

"I would never jeopardize my profit position," he says. "I was always looking at what I had coming in and what I had going out on an annexation deal. And I would always try to pass the risk that the property either will or will not develop on to the developer."  

A key difference between Lanier and the kind of leadership Dallas gets at City Hall is that, before he became mayor, Lanier had played and won against the big boys on the battlefields of business. Dallas' top leaders--Mayor Ron Kirk and City Manager John Ware--have always worked for the big boys, rather than being of their rank.

Jerry Wood, a Houston city planner, was not always Lanier's biggest fan, but gives him grudging respect for knowing how to handle bumptious developers.

"People made the mistake when Lanier came in of thinking that, since he had been a developer, he would play footsy with the developers," Wood says. "But Lanier had screwed other developers when he was a developer. When he was mayor, Lanier screwed the developers some more. Bob Lanier just likes to win."

Wood, who is probably one of the most experienced city officials in the country in the art and science of annexation, says he watched Lanier enforce a tough but useful rule of his own on developers who came to him with the idea that Houston should annex their developments:

"He just said, 'If you're so sure all this development is going to take place, then you need to step up and take all the risk yourself and not ask the city to take it for you.'"

The amount of risk a proposed annexation poses to the annexing city varies a lot, Wood says, depending on what the developer wants to put on the land. The trick is to make sure the property will pay more than the tax revenue it takes for the city to provide services.

In figuring out whether a deal is good or bad, Wood says, there are a lot of pieces to the puzzle, but, taken singly, each piece is fairly straightforward.

A standard urban fire station, for example, costs about $1 million a year to operate. In Houston, it takes $150 million in property value to produce $1 million in taxes. So, to pay for the fire station alone, it would take two thousand $75,000 condominiums.

It gets easier, Wood says, if you're doing $350,000 homes. About 430 of them would pay for the firehouse. But then you still have to pay for the police substation; the traffic and street lights, which are very expensive; and a host of other required city services.

And then there is the issue of where. Wood says it takes a minimum coverage area of about seven square miles to operate a modern fire station at optimal efficiency. The area being proposed for annexation in Kaufman County, however, is less than half that size, and only a fraction of it may be usable for development.

Of course, it's also detached from the rest of Dallas, which adds enormously to the cost of providing services. People in the new area will have the same right as people in the city's established areas to speedy police and fire response. Giving it to them will require that the city create new, separate facilities for many services.

Fairly precise mathematical formulas help cities determine whether they will make money or get screwed by annexing an area. In Houston it's called the "Pizzitola Formula" after the planner who worked it out, and it provides a concrete way to put on paper what Lanier was always doing in his head--measuring what's coming in against what's going out.

Some of the developers whose properties have been annexed by Houston in recent years have even been forced to sign a deal that completely eliminates the city's risks: If the city really is making money on their annexed development, everything is fine. But for several years after annexation, if the Pizzitola Formula shows that the city is losing money by providing services to the area, the developer gets assessed for the amount the city is losing.

In other words, when Houston annexes, it only annexes when there is no risk to city taxpayers, and when the city is guaranteed it will make money on the deal.

So who is the tough-as-nails, street-hardened guru at Dallas City Hall who is going to make sure Dallas taxpayers don't get taken to the cleaners on the Clements-Hunt deal in Kaufman County?


Cheryl Peterman, head of the Plan Department and John Ware's point person on the Clements deal, is known outside City Hall mainly for the role she played in last year's assault on the city's preservation tax incentives. In that battle, she earned a name among the city's new generation of hip inner-city and downtown developers as an ill-mannered bureaucrat who will do anything to keep Ware off her back and to hold on to her job.  

One of the ways in which the city has been able to revitalize aging inner-city neighborhoods and spur the development of downtown residential living is by offering tax breaks to people who renovate old buildings. The tax incentives are a key ingredient downtown in the conversion of old office towers.

When word went down the pipeline at City Hall last year that John Ware wanted to scrape up income and cut expenses wherever possible to make the arena and river deals look better, Peterman did her part by trying to gut a key provision of the preservation incentives.

Had she succeeded, she would have scoured up only a relative pittance in new income for the city. But a number of insiders think it was about more than just dollars.

"There's a new generation of developers in the city," says one developer, who asked not to be identified because he does business with the city "every day." The new breed is committed to moving back into downtown and the old neighborhoods and sorting through the political and financial complexities involved in redeveloping those areas by renovating properties--in other words, making money by making the neighborhoods we already have better.

Of course, the old generation of developers is still around--a few of them, anyway. And their preference has always been raw-land development, like the Renner deal in the late '70s, when Dallas was persuaded to annex the entire town of Renner before it was developed but after it had been purchased in toto by former Dallas Mayor Robert Folsom.

(Looking at a map, if one pictured Dallas as a dead turtle on its back with its feet splayed, Renner would be the stretched neck and head sticking up into Collin County. There was no controversy over the annexation back then because that was before controversy was allowed in Dallas.)

For most of the last quarter-century, the city had to squeeze other neighborhoods in order to provide services to Renner. No one at City Hall has ever put a sharp pencil to the deal to see whether Dallas ultimately profited or lost money by annexing it.

Some people who deal with Peterman and her department think her role in going after the preservation incentives was her way of waving the flag for the good ol' boys, showing that she wasn't tied to the new urban-hip developers and would do whatever she had to do to keep John Ware's patrons happy.

The idea of gutting the preservation incentives was so raw--it was even condemned by The Dallas Morning News--that it failed, for the most part.

But Peterman by then had created a lasting image of herself. As one developer put it, "She's an inside bureaucrat who is interested only in holding on to her job until she retires. She's scared to death of John Ware. She doesn't have the slightest interest in anyone or anything but whatever it takes to keep Ware off her case."

Peterman refused to take any calls or answer any questions at all or appoint anyone else to answer questions from the Observer on the Clements-Hunt development. Jim Oberwetter, spokesman for Ray Hunt, also did not respond to questions. Former Governor Clements did not respond to telephone messages requesting comment.

John Ware also did not return phone calls asking for comment.
But Clements' son, B. Gill Clements, who runs the farm and is playing a lead role in developing it, goes the rest of them a step better. The younger Clements has a business phone that simply is not answered. At all.

But even if the people asking for the money won't talk about why they want it, they nevertheless have left certain footprints in the soil around Lake Ray Hubbard, which offer some clues.

Danny Greenhaw, who lives on one of the raunchy ranchettes near the Clements farm, has been keeping a sharp eye out for developers. "They surveyed the farm last winter," he says. "And when the surveyor came up to my property, I asked him what it was for. He said they were going to develop it.

"Then they [photographed] it from the air. The talk after that was that they would develop two to three hundred acres with a golf course."

That size of development just about matches Buddy Miller's estimate of the amount of land Clements owns that is not subject to flooding.

The property, which is about a mile off the freeway and even more distant from the nearest subdivisions, doesn't strike anyone as a likely location for a shopping mall. Buddy Miller says, "The only good place for shopping would be my property at the crossroads, and I have had a lot of friends try to convince me I could get rich by opening a liquor store, since everything nearby is dry. But I can't see a mall."  

Stephen Davis, whose family originally owned all the land in the area, is a member of a rural water board and picks up bits and pieces of area gossip.

"There was some talk of them doing condos at one point," he says. "And there was some talk of 1,000 to 1,500 homes in the range of 1,200 to 1,300 square feet."

What emerges from the local rumor mill is a fuzzy but persistent picture of an exclusive, high-end housing development of some sort clustered around a golf course.

That picture looks pretty much exactly like the sort of thing Houston wouldn't touch with a 10-foot pole. It would be the kind of area that would make high demands for services, but might not come close to generating the tax revenue needed to pay for them. And forget about putting the city in a profit position.

Ah, but what a deal it would be for the developers and their well-heeled customers. Far away from the bad people. Certainly very fancy, if Bill Clements and Ray Hunt are developing it. Almost certainly gated and guarded.

All of the typical downside of living in a rural enclave--spotty water quality, shaky healthcare, crummy roads, redneck neighbors--would be eliminated. Residents could call 911 and expect the City of Dallas to get that helicopter or fire truck or ambulance or police car out there pronto.

At some point, Peterman and Ware will have to go to the city council and spell out what they have in mind. It will be intriguing to see how the council responds.

California cities dealing with annexation issues in recent years have been hiring annexation consultants, sort of like urban accountants, to come in and do objective studies of the income and out-go involved in any annexation proposal. If the Dallas City Council wants to get the real numbers on this one, they will go outside to an objective expert and as far away from Cheryl Peterman as possible.

The only other hope is that, before he leaves office in a few weeks, Ware will be able to sell the council itself to someone. At least that would afford a fresh start.

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